Suppose there are two types of food Slow and Fast Slow food is food that takes a lot of time and energy to prepare, and is possibly more authentic Consider it a high end luxury good All other food we'll call Fast It's a staple needed to live, is quick to acquire and cheap The slow food costs $20 per unit, while the fast food costs $5 per unit The price elasticity of demand for slow food is 2 8 The price elasticity of demand for fast food is 20 The government is considering a tax on food The tax on slow food is denoted t s , and the tax on fast food is denoted t f Comment on the significance of the different elasticities of demand What is the equation for the optimal (Ramsey) value of t s in terms of t f In a clearly written paragraph, comment on the relative size of t s compared to t f , and why we are seeing this result Suppose the government has selected tax levels t s and t f using the Ramsey rule Furthermore, at those taxes, the market sells 3 million units of slow food and 300 million units of fast food , the government collects $1 billion in revenue from these taxes What are the values of t s and t f

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Posted on Jun 20, 2024

Suppose there are two types of food: Slow and Fast. Slow food is food that takes a lot of time and energy to prepare, and

Suppose there are two types of food: Slow and Fast. Slow food is food that takes a lot of time and energy to prepare, and is possibly more "authentic." Consider it a high-end luxury good. All other food we'll call Fast. It's a staple needed to live, is quick to acquire and cheap. The slow food costs $20 per unit, while the fast food costs $5 per unit. The price elasticity of demand for slow food is -2.8. The price elasticity of demand for fast food is -.20. The government is considering a tax on food. The tax on slow food is denoted t_s, and the tax on fast food is denoted t_f.

Comment on the significance of the different elasticities of demand.
What is the equation for the optimal (Ramsey) value of t_s in terms of t_f?
In a clearly written paragraph, comment on the relative size of t_scompared to t_f, and why we are seeing this result.
Suppose the government has selected tax levels t_s and t_f using the Ramsey rule. Furthermore, at those taxes, the market sells 3 million units of slow food and 300 million units of fast food., the government collects $1 billion in revenue from these taxes. What are the values of t_s and t_f?